From Vendor to Lifestyle Provider: The Growth of Partnership Marketing

Most movie buffs love to curl up on the couch with their families to watch a great classic movie, the latest Disney release, or the newest action flick. And chances are, they probably don't want to bother making dinner at the same time. Understanding the needs of both of their customer bases, online movie rental company Netflix and pizza delivery company Papa John's teamed up a few years ago to offer a $10 Papa John's gift card to any new Netflix customer. It's a great example of partnership marketing in action.

These days it's not enough for companies to serve their customers with just products and services. They need to meet the needs and preferences of customers in an increasingly converged world. And in this world, the idea of partnership marketing gains new relevance.

Partnership marketing refers to the cross-selling of a partner's products to your own customer base. The concept has been around for decades but has only recently gained popularity due to technological developments and customers' increasing expectations and lifestyle changes. For many industries, top-line growth is slowing. Many companies have largely exhausted cross-sell and upsell opportunities of their own products with their current customer base. At the same time, new product development is costly, takes time, and is risky. For every iPhone, there are hundreds if not thousands of failed products we've never heard of.

In some instances, partnership marketing happens de facto. Can you imagine the customer experience if you went to the movie theater and couldn't order a Coca-Cola and M&Ms? Or if there was no toy in the McDonald's Happy Meal? And runners certainly appreciate that Nike and Apple teamed up to connect Nike's sneakers with Apple's iPod to keep track of mileage and play that up-tempo song when needed.

The current climate is ripe for partnership marketing. Customers are comfortable with brands going outside their traditional markets. Cable companies offer phone service and Internet service. Big box retailer Costco sells health insurance. Customers are looking for brands that are considered "lifestyle providers."

Benefits of partnership marketing
Done right, with the most appropriate partners to serve the right customer needs, partnership marketing has five strong benefits to a company:

• Expands the customer base: With the right partners, a company can reach potential customers it would not otherwise have access to. Small and medium-size businesses, where acquisition costs can be a large chunk of their overall budget, have known this for years. This is why you see companies like Jordan's Furniture creating a superstore that includes a Bose stereo store inside. However, major B2C corporations have largely shunned the practice for fear of losing out on a chance to sell more of their own products or jeopardizing customer satisfaction.

• Builds trust: A good partnership serves the needs of customers beyond the limits of one company's products and services. This goes a long way to build and retain customer trust. Trust is a combination of good intent and competence, both of which are represented with the right partnership. Consequently, companies participating in partnership marketing often both enjoy increased customer trust. It's essentially the businesses putting in a "good word" for each other. Each trusts the other to work with its most valuable and scarce resource: customers.

• Leverages shared resources: By providing partners with access to customers, a company can reach new potential sales prospects with virtually no incremental time or effort.

• Low cost delivery: Costs and responsibilities of the product or service delivery are shared between the businesses, saving money.

• Activates creative thinking: Most companies are inwardly focused on selling products; some even have a difficult time cross-selling other siloed products their firms offer. By focusing on customer needs first, partnerships can open the eyes of marketers to potential new business models within their own organization.

Of course, no partnership will work if customers don't find value in it. Designed properly, partnerships not only provide discounts, but also respond to different customer needs. Partnerships should be designed with the customer perspective ahead of everything else. Companies must be transparent with customers about the details of the partnership, and how customer information may be used. Customers should be given the opportunity to opt out of campaigns, offers, or partnership-related messages. This way, only customers willing to benefit from the offers will be targeted. Then, the mechanics of the partnership must be clearly explained to customers to avoid confusion. For example, if consumers can use their loyalty points at partner sites, this information must be clearly explained.

And when it comes to customer data, information should be handled properly to protect customer privacy. Customer consent and regulations around the use of data should always be respected, and the data should not leave a company's databases. It's also a best practice for companies to contact their own customer bases on behalf of their partners to keep the relationship strong.

The path to a successful partnership
The argument for partnership marketing isn't about if a company should do it, but instead how to make the most of it. We advise companies to look at their overall corporate strategy, and see where a partnership might fit in. Operationally, partnerships should be one pillar in a framework designed to achieve loyalty and prevent churn among current customers.

Before any moves can be made a company must define the goals of a partnership and identify some potential industry partners. Companies in low-margin, low-price, high-transaction-frequency, and high-competition industries such as food and beverage, entertainment, and clothing will especially benefit from sales partnerships. The more commoditized the product, the more a company can differentiate it through a partnership. Also, reaching the right customers at the right time will have more impact for commodity products. This makes them perfect partners for telecom companies, for example, which have deep customer data and in some cases location-based information, but have largely exhausted their internal cross-sell and upsell opportunities.

The best partnerships meet customer needs, and not all customers are created equal. Therefore, customer segmentation plays an important role in selecting a partner. Companies should consider selecting a portfolio of potential partners because customer needs will differ across segments. By analyzing customer data, companies can determine which partner offerings to offer to which segments. Yes, certain brands like Papa John's can be used to provide partner benefits to all of Netflix's customer segments, but others will be more exclusive to certain segments. Depending on the program's object-ives, different partnerships will be required for different target segments.

Once a partner has been identified, everyone needs to agree on the type of partnership it will be. There are several options, depending on the company's objectives, the customer needs that are to be met, and the requirements of the partner. The most popular is revenue sharing, in which partners agree on preset percentages of the product's lifetime revenue resulting from the partnership. Another option is a lump payment or licensing fee, where one company pays up front for the partnership. Some partnerships are hybrids of the two.

A joint strategic approach to the partnership will have the most impressive impact. After all, each company knows its customers, and should have the best idea of how the partnership should work with their customers. Partners need to work together to create relevant and valuable marketable assets for each customer base.

European companies tend to lead in this arena. For example, Turkish mobile operator Turkcell established a virtual-world website called Turkcell City to promote several partners such as Avis car rental and electronics retailer Bimeks. Turkcell customers visit a partner through the website, select a product or service, and send an SMS to Turkcell to request a discount. Turkcell sends a unique code back to the customer, which he shows to the partner. The customer gets the discount, and Turkcell and the partner share the revenue made from each Turkcell customer who uses the discount.

In another example, Vodafone Turkey offers free mobile minutes when customers purchase specific items at Burger King. Customers opt in to pay an extra Turkish lira when they buy their meal, and in return receive a day's worth of minutes for free. Vodafone can identify its current customers who are interested in this campaign and use the information for customer profiling. It also serves as a customer acquisition tool, where new customers see the promotion and switch to Vodafone. This model gives Vodafone the opportunity to sell bulk minutes and services to partners, which is becoming an alternate revenue stream in the region.

Partnership marketing allows companies to branch out from their typical service offerings and begin to build a brand that is based around trust and serving the needs of their customers. It's a valuable acquisition and retention tool for companies looking to be "lifestyle providers" without incurring the enormous costs of taking on a new initiative on their own. And it's a creative way to launch a new source of revenue—one that customers will value.